Thailand Country Brief - June 2008
Political overview
Recent Political Developments in Thailand
A democratically-elected government, led by Prime Minister Samak Sundaravej, was sworn-in by His Majesty King Bhumibol Adulyadej on 6 February 2008. This followed national elections held on 23 December 2007. The elections marked the return of parliamentary democracy to Thailand following a military coup in September 2006, and adoption of a new constitution by referendum on 19 August 2007.
The Monarchy
His Majesty King Bhumibol Adulyadej is deeply respected by the Thai people. He is the world's longest reigning monarch and celebrated the 60th anniversary of his accession on 9 June 2006.
Thailand's Foreign Policy
Thailand attaches primacy to its immediate region, notably mainland South-East Asia and ASEAN, in the formulation of its foreign policy. Beyond this, Thailand accords importance to its relations with China and other major powers, including the USA, and Japan, as well as the Republic of Korea, India and the EU. Thailand has placed increasing emphasis on its regional dialogue with Japan, China and the Republic of Korea in recent years. Thailand has been a member of the Non-Aligned Movement (NAM) since 1993.
Thailand's major security preoccupation has traditionally been with its borders and the internal situations in neighbouring countries, Cambodia, Burma, Laos and Malaysia. The Thai Government has had limited success in engaging the Burmese in negotiation of bilateral issues. Contentious issues include the trafficking of narcotics and the presence in Thailand of an estimated one million Burmese workers, many of them illegal, and over 100,000 displaced Burmese.
Thailand has bilateral security and commercial agreements and a long-standing defence relationship with the United States. The United States is Thailand's major trading partner, although Japan is the single largest investor in Thailand.
Thailand has a One China policy, as well as strong trade, investment and labour links with Taiwan. Thailand has substantial and growing economic links with southern China, including significant investment.
Thailand has supported an open international trading environment through membership of the WTO, and joined, as a founding member, both the Cairns Group of 19 agricultural fair trading nations and APEC. Thailand hosted APEC in 2003 and will chair ASEAN for a period of 18 months from August 2008. Thailand has been pursuing a range of bilateral free-trade or similar agreements, and is currently involved in negotiations on the Australia-ASEAN-New Zealand FTA (AANZFTA).
Economic overview
Thailand's real GDP growth in 2007 was 4.7 percent driven mostly by a strong export sector, despite continuing appreciation of the baht against the US dollar. The Bank of Thailand , the Thai Finance Ministry and the Thai National Economic and Social Development Board have estimated that real GDP growth in 2008 will be between 4.5 and 5.5 per cent. Inflation is expected to rise from a low 1.1 per cent in 2007 to 1.9 per cent in 2008, in part owing to rising fuel prices.
On 29 January 2008 the Bank of Thailand lifted its 30 percent controls on foreign investment inflows introduced in December 2006 to curb appreciation of the Thai baht. The strengthening of the baht against the dollar is likely to increase over the near-term making imports relatively cheaper. The Thai Government has also focused on fiscal stimulus measures (the first of which was unveiled in March 2008) which should impact positively on consumption and private investment in the short term. This will be complemented by a series of infrastructure ‘mega-projects’ and a broadly expansionary fiscal policy, the early benefits of which are expected to be felt by late-2008.
The major challenges to Thailand’s immediate economic outlook are now external, with uncertainty in global markets and economies raising fears of a softening in export performance.
Bilateral relationship
Australia and Thailand have longstanding, deep and broad connections, cooperating in a broad range of areas of mutual interest, including trade and investment, law enforcement, counter-terrorism, education, security, migration and tourism. Formal diplomatic relations were established between Australia and Thailand in 1952. The bilateral relationship is facilitated by mutual membership of bodies such as APEC, the ASEAN PMC, the EAS and the Cairns Group.
Australia has strong links to the Thai Royal Family. His Majesty King Bhumibol Aduljadej visited Australia in 1962 and the Thai Crown Prince, His Royal Highness Maha Vajiralongkorn, studied at secondary school and military college in Australia, subsequently completing training with the Australian Army’s Special Air Service Regiment in Perth.
Our strong bilateral relations are reflected in ever increasing people-to people links. Australia continues to be a leading destination for Thai students and Thailand attracts large numbers of Australians for tourism and business. Prior to Thailand’s decision in 2003 to decline development assistance Australia was a major aid partner. Many Thais studied in Australia under the Colombo Plan and other programs.
The Thailand-Australia Free Trade Agreement (TAFTA) entered into force on 1 January 2005. TAFTA has facilitated increased two-way trade and investment, improved business mobility, increased transparency, encouraged international best practice, and promoted bilateral cooperation in a range of areas including customs procedures, government procurement, competition policy and intellectual property protection.
A treaty-level Agreement on Bilateral Cooperation entered into force on 27 July 2005. It complements TAFTA by providing a framework for future bilateral cooperation in non-trade areas, including security and law enforcement, environment and heritage, science and technology, telecommunications, civil aviation, public administration, energy, immigration, education, culture and social development. In addition, a Memorandum of Understanding (MOU) on ‘Work and Holiday' Visas allows nationals of both countries to undertake 12-month working holidays in the other country.
Security and Counter-terrorism Cooperation
Regional stability is a key area of mutual interest and the two countries undertake regular high-level dialogues on regional security. Thailand was one of the first countries with which Australia concluded a bilateral MOU on Counter-Terrorism in October 2002. This was followed by MOUs on police cooperation (June 2003), mutual assistance in customs matters (December 2003), and money-laundering (June 2004), and a Mutual Legal Assistance Treaty (July 2006). Thailand is also a key player with Australia in efforts to strengthen regional cooperation against people smuggling and trafficking and has extradited accused people smugglers to stand trial in Australia in recent years.
Cooperation in Multilateral Forums
Both countries are committed to carrying forward the Doha Round in the World Trade Organization (WTO) and are active members of the Cairns Group, which promotes agricultural trade liberalisation. Australia and Thailand cooperated closely on the successful WTO challenge to EU subsidies on sugar exports. In APEC, Australia and Thailand work closely to further initiatives to promote free trade and investment within the region.
Development Assistance
In November 2003, the Royal Thai Government publicly expressed its wish to move away from being an aid recipient. As a result, Australia's development cooperation with Thailand has been reduced significantly since 2004-05. Total Australian assistance to Thailand in 2006-2007 was $6.3 million. Assistance is focused on developing public sector linkages and addressing regional issues such as terrorism, narcotics and people trafficking. Thai authorities have expressed interest in cooperating with Australia to provide aid to third world countries, particularly in the Pacific. More information on development assistance to East Asia is available at AusAID.
Bilateral economic and trade relationship
The Thailand-Australia Free Trade Agreement
Thailand has for some years been an important and expanding market for Australian export of goods and services, but economic linkages have been hampered in the past by Thailand's trade restrictions and barriers.
The Thailand-Australia Free Trade Agreement (TAFTA), entered into force on 1 January 2005. It ensures greater access for Australian products and will improve prospects for services trade and investment.
TAFTA is Thailand's first comprehensive free trade agreement with a developed economy and Australia's fourth free trade agreement (after New Zealand, Singapore and the United States) and second with an ASEAN member. It is also the first FTA between a developed and developing country in South-East Asia and sets a benchmark for future trade liberalisation in the region.
TAFTA is a major market opening agreement. It will lead to the complete elimination of Thailand's significant tariffs across all sectors (in some cases up to 200 per cent) and substantially improve the environment for services trade and investment. It also improves the regulatory environment in Thailand and promotes increased business mobility.
On entry into force, more than half of Thailand's 5,000 tariffs – accounting for nearly 80 per cent of Australian exports – were eliminated. Tariffs not immediately eliminated will be phased down and 95 per cent of all current trade between Australia and Thailand will be completely free by 2010. Longer phase-out periods and special quota arrangements will apply to a number of agricultural goods. Importantly, the tariff preferences contained in the Agreement are only available to Australian exporters and therefore give them an important advantage over their competitors in the increasingly sophisticated Thai market. Many Australian companies formerly locked out of that market by high tariffs and quotas now enjoy new opportunities, particularly in areas such as agriculture, processed foods and beverages and automotive products.
As Australia already grants tariff-free access to many Thai products, Australia's tariff commitments in the Agreement are more modest than Thailand's. Of particular note, Australia has granted improved access for Thai imports of automotive products, textiles, clothing and footwear, steel and plastics and chemicals, subject to various tariff phasing arrangements. These phasing arrangements were developed in all cases following extensive consultations with relevant Australian industry groups.
In the longer term, dynamic gains from TAFTA promise to yield even larger benefits to the Australian economy. The Centre for International Economics has estimated that TAFTA will boost Australia's GDP by over $US2.4 billion in the first twenty years of its operation. Apart from the direct economic benefits, implementation of TAFTA will also enhance Australia's broader trade, economic and security interests in the region. A substantive and comprehensive FTA between the two countries signals strong support for multilateral, regional and bilateral trade and economic liberalisation initiatives and encourages strength and stability in the region.
There are also significant improvements in access for Australian services exporters and investors in the Thai market. Thailand has relaxed a number of its restrictive conditions relating to visas and work permits for Australian business people and has guaranteed non-discriminatory treatment of Australian investments in Thailand. Thailand's minority foreign equity limits have also been lifted in a number of sectors - mining, distribution, consultancy, construction, management consulting, major restaurants and hotels, science and technology institutions, and maritime cargo.
TAFTA also includes mechanisms aimed at promoting cooperation, transparency and international best practice in a wide range of areas such as intellectual property rights, competition policy, e-commerce, quarantine standards and industrial standards.
A Strong Beginning
Since entering into force on 1 January 2005, TAFTA implementation has been proceeding smoothly. More than 870 Australian companies have been registered as active exporters under TAFTA and more than 14,000 certificates of origin for shipments to Thailand have been issued.
Bilateral Trade and Investment
TAFTA has provided the bilateral trade relationship with a significant boost. In 2007 two-way merchandise trade was worth more than $12.3 billion (up from $6.8 billion in 2004, the last year before TAFTA came into force). Australia's main exports to Thailand are crude petroleum, aluminium, non-monetary gold, copper and coal. Thailand's key exports to Australia are motor vehicles (light commercial and passenger), non-monetary gold and heating and cooling equipment.
In 2007, Australia's services exports to Thailand totalled $804 million, while services imports totalled $1.6 billion, making Thailand our 9th largest services trade partner and 13th largest services export market. Education and transport are Australia's most important service exports to Thailand. Australia is one of the most popular destinations for Thais studying abroad with about one third doing so in Australia – Australia registered almost 20,000 Thai student enrolments in 2007. Our main services imports from Thailand are recreational travel services and transport, including shipping. Thailand is currently examining the potential to increase services trade with Australia in health-related services, including alternative medicine therapy, education services, and exports of construction and related professional services. It is also emerging as a regional hub for infrastructure, transport, medicine and education.
Two-way investment flows are relatively low by regional standards. At the end of 2006, Thai investment in Australia was $293 million while Australian investment in Thailand totalled $1,094 million. Foreign equity restrictions, red tape and language barriers contribute to the relatively low level of Australian investment in Thailand, although we expect TAFTA to substantially improve the environment for bilateral investment.
Export Opportunities
Thailand's high tariff peaks have compelled Australian producers to export at the low value-added end of the production chain. Removal of Thailand's tariff peaks will give Australia the opportunity to export higher-value-added goods and reduce our traditional reliance on exports of raw material and energy.
Automotive Parts and Manufacturing
TAFTA is expected to generate tangible benefits for Australia's automotive industry. Thailand has removed its 80 per cent tariff on large passenger motor vehicles and is phasing down its high tariffs on other automotive products. This should translate into significant new export opportunities in an automotive market that is similar in size to Australia's and an auto sector that has been called the ‘Detroit of Asia'. Exports of automotive parts to Thailand have almost doubled in value in the two years TAFTA has been in force.
Processed Food
Thailand's high tariffs on many processed food products have been a major impediment to the expansion of Australia's exports. TAFTA will open new opportunities for a variety of food products.
Trade Successes
Manufacturing exporters, like auto-components maker Dobinsons Spring and Suspension Companies from Rockhampton, Women's surf-wear maker Aztec Rose from Western Sydney, NSW, or kitchen-appliance maker Think Appliances from Thomastown in Melbourne, are all companies that have made recent inroads into the Thai market. According to David Gilbert of Think Appliances: “Kitchen appliance makers from Europe are paying a 16 per cent duty, but thanks to tariff reductions in the new agreement, we pay anywhere between 0 and 15 per cent. In the next few years, all our products will enter Thailand duty free,” he says.
TradeWatch Contacts
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